THEORY OF ECONOMIC DEVELOPMENT

ECONOMIC BASE

An economic 'base' is necessary for metropolitan growth. While some analysis contend that a metropolis's economic base can by measured by the concentration of an industry, the true metric is much simpler: Whatever brings in outside money.The easy flow of fiscal resources has made the world vastly 'flatter' than any time in history.  As a result, it is not possible to have metropolitan economies based entirely on transfer payments.

In a world of globalized supply chains, and internationalized corporate ownership, the primary economic impact from increased economic activity is not the purchase of additional local inputs, or even through local taxation. The on-going competition for taxable economic activity between different locations has sparked a ‚race for the bottom‘, significantly reducing firms tax burdens.

The capacity of an industry to be the economic base for an industry depends on its wage outputs, with a strong preference for high-wage jobs. The size of a metropolitan area‘s secondary economy corresponds to the magnitude and number of value inflows. While a metropolitan economy can be supported by a large stock of low-magnitude flows, high-magnitude flows are strongly preferable, because of the impacts on the secondary economy.

SECONDARY CYCLE

Clearly, not all economic activity in a region consists of primary economic activity. Secondary economic occurrs when money from the primary economic activity is recirculated in the local economy.  Secondary economic activity can be defined as any economic activity that would not occurr without the flows of value provided by the economic base. Most notably retail, they also include most services, including public services and institutional services such as health and education made possible by tax dollars provided by the economic base.

As value flows from agent to agent, each agent takes a *cut* of the value, thus reducing the magnitude of the flow. A high-magnitude flow of value is extremely desirable because of it’s capacity to generate multiple chains of secondary value flows. Value continues to flow through a metropolitan economy until it leaks out to acquire goods and services that are either unavailable or overpriced within that economy. Thus, the more *complete* a metropolitan economy is, the greater the number of secondary cycles occurr within the economy.